SUPREME COURT REBUKES HIGH COURT’S MISHANDLING AND MISAPPLICATION OF JUDICIAL MIND IN DECIDING TENDER DISPUTE

INTRODUCTION

A two- Judge Bench of the Supreme Court comprising of Justice Bela M. Trivedi and Justice Pankaj Mithal passed an Order dated 02.04.2024 in Civil Appeal No. 4626 Of 2024 (@ Special Leave Petition (C) No.23319 Of 2022) in Level 9 Biz Pvt. Ltd. Vs. Himachal Pradesh Housing And Urban Development Authority & Another and held that the Order dated 18.10.2021 of the Division Bench of the High Court of Himachal Pradesh was passed without proper application of mind and without assigning any cogent reason for brushing aside the findings recorded by the Independent Committee appointed by Himachal Pradesh Housing and Urban Development Authority (HIMUDA) and the observations made by the Ld. Single Bench of the High Court in its Order dated 08.01.2021, about the irregularities in the Tender process conducted by HIMUDA.

FACTS

1) The Respondent No. 1, Himachal Pradesh Housing and Urban Development Authority (HIMUDA), issued a Notice Inviting Tender (NIT) dated 15/16.11.2018 for construction of proposed commercial complex of Vikas Nagar, Shimla, at the estimated cost of Rs. 45,05,62,074/-.

2) Subsequently, on 15.12.2018, the Technical Bids and the Financial Bids were opened on the same day. The Appellant, Level 9 Biz Private Limited and the Respondent No.2, M/s Vasu Constructions were the only Bidders who were found to be qualified for the same. But as the Appellant was a L2 Bidder, the said Tender was issued to Respondent No. 2.

3) Thereafter, the Respondent No. 1 issued a Letter of Intent (LOI) dated 17.12.2018 in favour of Respondent No. 2.

4) That on 24.12.2018, an unsuccessful Bidder, Mr. Dalip S Rathore filed a Writ Petition being CWP 3021 of 2018, thereby, challenging the technical specifications and ineligibility of the Respondent No. 2 and also sought for cancellation of the Tender.

5) The Respondent No. 1, thereafter, withdrew the LOI dated 17.12.2018 of the Respondent No. 2 stating that the case was pending in the High Court and the work will be awarded only as per the decision of the High Court.

6) That on 05.01.2019, the Respondent No. 1 constituted a Committee which reviewed the Tender process and concluded that there were many lapses which warranted actions against the wrong officials.

7) Thereafter, another Committee constituted by the Respondent no. 1 submitted a Report dated 07.01.2019 that Shri Dalip Singh was not a qualified bidder and that Respondent No. 2 qualified to bid for the Tender.

8) That on 23.02.2019, the Appellant-L2 Bidder filed a Writ Petition being CWP 363 of 2019 before the High Court of Himachal Pradesh, praying for rejection of Technical Bid and Financial Bid of the Respondent No. 2.

9) The High Court passed an Order dated 08.01.2021 in CWP 3021/2018 and 363/2019 and disposed off both the Petitions and directed the Registry to initiate separate proceedings against erring officials, observing as under:

“14. Since the committee, after having perused the records, has arrived at a definite conclusion that on account of shortcomings/irregularities, tender in question requires to be cancelled, nothing much is left for this court to adjudicate in these matters. Leaving everything aside, learned counsel for the petitioners in both the petitions, being satisfied with the findings of enquiry committee as well as suggestions made therein, are not willing to prosecute the cases further and have prayed to dispose of the same as having been rendered infructuous.

15. In view of aforesaid, both the petitions are disposed of as infructuous alongwith all pending applications. Interim directions, if any, stand vacated. However, liberty is reserved to the parties to file fresh petition(s), if any, if they still remain aggrieved.

16. However, this court, having taken note of the fact that the enquiry committee despite having found officers lacking in discharge of their duties, has failed to fix responsibility and recommend action, criminal or departmental, deems it necessary to direct the Registry of this Court to register separate proceedings, enabling this Court to pass appropriate orders so as to ensure strict compliance of recommendations given in the report of enquiry committee and pass appropriate orders with regard to initiation of criminal/ departmental proceedings against the erring officials. Registry is directed to register separate proceedings and list the same on 17.3.2021. The order dated 25.9.2020, this judgment and the enquiry report submitted by the committee constituted by this Court, shall form part of the fresh proceedings.”

10) The Respondent No. 1, pursuant to the Order dated 08.01.2021 passed by the High Court, cancelled the Tender on 05.02.2021.

11) The Respondent No. 2 filed a new Writ Petition against the Respondent No. 1 i.e., CWP 1481 of 2021 before the High Court, thereby, challenging the Decision of the Respondent No. 1 of 05.02.2021 to cancel the Tender. That the Respondent No. 2 also filed two separate Letters Patent Appeal being LPA No. 6/2021 and 12/2021 before the Division Bench of the High Court against the Common Order dated 08.01.2021 passed by the Ld. Single Bench of the High Court in CWP 3021/2018 and CWP363/2019.

12) Subsequently, the Respondent No. 1 issued a fresh NIT for the same project, but the same was stayed by Division Bench of the High Court, vide Interim Order dated 17.11.2021 in LPA No. 6/2021 and 12/2021 and CWP 1481 of 2021 till further orders.

13) The Division Bench, vide Order dated 18.10.2021, disposed off the Writ Petition No. 1481/2021 upon statement of the Executive Engineer of Respondent No.1 and observed as under:

“7. Learned counsel for the respondent on instructions of Mr. Rajesh Thakur, Executive Engineer, HIMUDA, Division, Shimla-9, has submitted that the competent authority wants to withdraw the cancellation of initial tendering process order dated 5th February, 2021, bearing No. 5806-11, as the public is deprived from the facilities, which would have been available to them after completion of the project. The project cost is going to be enhanced due to delay in execution of the project, which will cause additional burden on the public exchequer. The various Government departments/PSUs are facing acute shortage of office accommodation, therefore, in larger public interest, the authority has no objection to go ahead with initial tendering process, in case the petitioner is ready to execute the work at the same rate and terms and conditions as were agreed at the time of finalization of the initial NIT dated 15.11.2018 (Annexure P-2). The time period for execution of work will start from date of fresh award letter which will be issued in favour of the petitioner within 15 days.

8.Learned Senior counsel for the petitioner, on instructions from the petitioner, has submitted that offer made by the respondent is acceptable to the petitioner and petitioner is ready to execute the project on the same terms and conditions and rates as per initial tender dated 15.11.2018 (Annexure P-2).”

14) Thereafter, the Contract Agreement was signed between the Respondent No. 1 and 2 and the work started.

15) Aggrieved by the Order dated 18.10.2021 of the Division Bench of the High Court, the Appellant filed Civil Appeal No. 4626 Of 2024 (@ Special Leave Petition (C) No.23319 Of 2022) before the Hon’ble Supreme Court. The Apex Court while issuing the Notice, granted a stay of operation of the said Order dated 18.10.2021.

SUPREME COURT ANALYSIS

The Apex Court vide Order date 02.04.2024, made the following observations:

i) The Supreme Court observed that the Division Bench improperly handled the Petition filed by the Respondent No. 2 on the ground that despite the cancellation of the Tender due to irregularities found by an Independent Committee and a High Court Order, the Division Bench accepted statements from the Counsels for Respondent nos. 1 and 2. It was puzzling how the Executive Engineer of HIMUDA stated that the cancellation of the Tender might be withdrawn, and Respondent no. 1 had no objection to proceeding with the initial tendering process. This contradicts Respondent no. 1’s earlier decision to cancel the Tender due to irregularities and the fact that Respondent no. 2 wasn’t technically qualified.

ii) Further, when the High Court passed an Order dated 08.01.2021, based on findings from the Committee, thereby, cancelling the Tender, it was crucial for the Respondent no. 2 to include the Petitioners from earlier two Petitions as respondents in their new Petition. Similarly, the High Court should have given these Petitioners a chance to be heard before passing an Order on the new Petition. Instead, the High Court disposed off the Petition by accepting statements from Counsels for both Parties, allowing them to proceed with the work based on the initial Tender, which had already been cancelled by the Respondent no. 1.

iii) The Supreme Court further stated that, although the LOI dated 17.12.2018 was issued by the Respondent No. 1 in favour of the Respondent No. 2 initially, the same was withdrawn by the Respondent No. 1 as per the Letter dated 02.01.2019 on account of pending litigation before the High Court.

iv) The Bench further stated that, the Letter of Intent is merely an expression of intention to enter into a contract. It does not create any right in favour of the party to whom it is issued. There is no binding legal relationship between the party issuing the LOI and the party to whom such LOI is issued. A detailed agreement/contract is required to be drawn up between the parties after the LOI is received by the other party more particularly in case of contract of such a mega scale.

v) The Apex Court observed that, as there was no right whatsoever created in the favour of the Respondent No. 2 and since the Respondent no. 1 had already accepted the recommendations of the Committee appointed by the High Court and the Order dated 08.01.2021 passed by the High Court, and had cancelled the Tender and issued fresh NIT on 17.11.2021, the Respondent no. 1 could not have agreed to allow the Respondent no. 2, who was found to be not technically qualified, to go ahead with the execution of the project and more so, without giving the other two Parties any opportunity to negotiate.

ORDER

The Supreme Court held that the Respondent No.1 and 2 had taken the High Court for a ride and misused the process of law for covering up the irregularities and illegalities committed in the Tender process by the officers of the Respondent No. 1 and for anyhow awarding the contract to the Respondent no. 2 under the guise of the Court’s Order.

The Apex Court further held that the Order dated 18.10.2021 of the High Court was passed without proper application of mind and without assigning any cogent reason for brushing aside the findings recorded by the Independent Committee and the observations made by the Ld. Single Bench in the Order dated 08.01.2021, and the same deserved to be quashed and set aside.

The Supreme Court allowed the present Appeal of the Appellant with heavy costs of Rs. 5,00,000/- to be deposited by the Respondent No. 1 with the Supreme Court Advocates on Record Association, within two weeks from 02.04.2024.

Further, the Bench held that the Respondent No. 1 would be at the liberty to initiate a fresh NIT in accordance with the law and after following the due process of the law.

 

Kartik Khandekar

Associate

The Indian Lawyer & Allied Services